Introduction
The transition of the word into a global village over the recent few years is an inescapable fact that organizations and businesses must contend with. Lundby, Jolton, and Kraut (2010) offered a practical example of the implications of globalization by observing that in a globalized world, a flu among workers in Mexico affects the pricing of fruits produced there in Japan, Asia. The example highlights the implications of labor dynamics in the commodity markets globally. The observation demonstrates the extent to which globalization is responsible for integration of global labor markets. Increases in wages have occurred globally in the past decade, though disparities remain when comparing advanced, advanced and developing, and low-income countries. Median wages in advanced countries have been found to be 2.5 times for the same level of skill set in the most advanced developing countries, and 5 times that in low-income countries. Nevertheless, companies seeking to globalize their operations by setting up subsidiaries seek to benefit from such disparities through Foreign Direct Investment (FDI) in countries with affordable labor. However, the factors such as business climate, governance, and education, influence labor dynamics under globalizations. This paper explores expansion prospects for General Electric Limited (GE) with focus in global labor markets.
General Electric – Case Study
General Electric (GE) is an American based multinational company that deals in a number of segments including Additives, aviation, power, light, renewable energy, digital, capital and finance, healthcare (GE, 2019). GE faces an unprecedented future from the current unstable state of American and global economy. Therefore, establishment of subsidiaries across the world is a logical strategy for cutting down distribution costs. Under the circumstances, comparative analysis of business environment (labour dynamics) in Europe (Turkey), Latin America (Mexico), and Asia (Indonesia) is conducted to inform choice of expansion location. Choice of the above countries was informed by data showing that they topped globally in terms of the workforce in the manufacturing sector.
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Comparison of Data for the Four Countries
Analysis of labor statistics employed four important labor indicators namely, monthly earnings (US$), labor force, employment rates, and working time (see table 1 below). Comparison of data generates useful insights into the labor market in the respective countries. In terms of monthly earning, the US leads the pack, and its $1020 average shows the disparity in the global wage levels despite assertions of the gap reducing in the past few years. Labor wages are critical indicators of the state of the labor market in any given country. Data from ILO shows that the US is a good place for employees, but may not be attractive for companies seeking cheap labor for manufacturing such as GE. Mexico and Turkey reflect the average wages in most advanced and developing countries, while Indonesia depicts the situation in low-income countries. Ideally, Indonesia with the lowest monthly income ($174) would be the most attractive option, but wages are not the only determinant of success in the market.
In relation to labor force, the US leads with 45% with the rest of the countries coming far behind. However, the differences in relations to this labor indicator may stem from the overall population of each of the countries, including education levels. Turkey has the highest labor force second to the US at 17% compared to Mexico (16%) and Indonesia (11%). In terms of employment rates, the US still leads, with turning coming in last. Lower employment rate implies high unemployment rate, an indicator that Turkey has the highest score (11%) and Mexico the lowest (3.3%). Another critical factor is the working time. The US, which has the highest monthly earnings, has the lowest working time, which refers to the number of people working for more than 48 hours per week. On the other hand, Turkey and Mexico have the highest working times at 29 and 28 respectively. Working time in most situations translates to productivity, implying that countries with the highest scores have the potential for mass production using human labor. The more number of hours spent at work, the more the units produced per person.
Recommended Country – Turkey
Looking at all variables examined, it can be argued that the US has the most attractive monthly earnings, but these would be detrimental to GE objective of profitability by exploiting affordable labor in the global market. On the other hand, Indonesia, with the lowest wages among the four countries, is unattractive because it falls below the global average, implying the country labor market may soon be exposed to unrests as workers agitate for increase in wages. That leaves Turkey and Mexico, but the latter is ruled out because it scores unfavorably in some of the indicators including unemployment and labor force. Therefore, Turkey is the recommended option to be considered as the location for expansion.
Justification of the Recommendation
The choice of Turkey as the best location for setting up a subsidiary is informed by the observation that the country is in Central Europe where labor remain the lowest despite regional increases (Hurriyet Daily News, 2018). In addition, Turkey is a manufacturing hub with a significant part of its population working in the sector (18%). The country has average labor force with prospects for growth. The high unemployment rates in the country imply availability of a ready labour force. Lastly, it can be argued that Turkey has High productivity of the workforce given the high working time – the high number of people (29) working for more than 48 hours a week implies the workforce spends significantly high amounts of time being productive.
Additional Information Required to Make the Final Decision
How Turkey Solves the Needs of General Electric
General Electric faces the prospects of labour unrests in the US with machinists recently opposing a tentative labour contract (Scott, 2019). Millions of US jobs in the manufacturing sector have been lost since 2000 due to automation, which heightens protectionist negotiations by the unions (Correll, 2017). Turkey is a case example of the many advanced developing countries where integration of labour through globally competitive wages exists. Like other American manufacturers, GE must rely on importing product parts from low-cost labour countries and performing assembly in the country. The comparatively low cost of labour in Turkey is attractive compared to investing on automation. Unlike America where 38% of the jobs are at high risk of replacement by technology (Correll, 2017), Turkey still relies on manual labour, which is economically viable.
General Electric HR Strategies for Turkey
General Electric can opt to use the local workforce or import from countries with skilled labor in its manufacturing segment. However, the overall approaches that the HR should adopt revolve around exporting lost manufacturing jobs to low wage workers in Turkey through establishment of manufacturing plant(s). GE can also invest in training of Turkish unskilled workers to get maximum benefits from the high working time. In addition, championing for healthy working conditions to avoid labour unrests as the case in the US can be beneficial. Training US-based managers in readiness for take over at the Turkish subsidiary is also necessary. The company HR must strive to develop a globalized culture to absorb a diverse workforce, in addition to keeping pace with the latest trends and applications in ICT.
Recommendations for GE Management
The following are some of the recommendations for the management of GE to inform decision making on the viability of Turkey as an expansion location:
Conduct extensive feasibility research on cost-benefit outcomes of the Turkish labour market on GE operations;
Explore the role of other labour determinants on foreign direct investment (FDI);
Compare the cost of production and import of products from Turkey to manufacturing in the US;
Consider whether the investment should be short, medium, or long term based on prevailing labour dynamics in the EU region;
Explore ways of leveraging benefits from the Turkish labour force without disrupting the existing tranquillity such as the average monthly pay; and
Conform to local labour laws for smooth operations and avoidance of legal suits.
Conclusion
General Electric faces a similar predicament as many other American companies affected by the rising labor costs in the US as workers and unions continue to agitate for increase in wages. The persistent labor unrests are disruptive to the success of GE in the country. The favorable labor conditions in Turkey offer a logical reason for consideration of a FDI in the country. However, relevant information must be accumulated to inform decision-making by the management and the role of HR in the expansion process.
References
Correll, N. (2017). To really help U.S. workers, we should invest in robots. GE Reports. Retrieved from https://www.ge.com/reports/really-help-us-workers-invest-robots/.
General Electric. (2019). GE businesses. Retrieved from https://www.ge.com/
Hurriyet Daily News. (2018). Turkey remains a manufacturing hub thanks to low costs despite risks: Report. Retrieved from http://www.hurriyetdailynews.com/turkey-remains-a-manufacturing-hub-thanks-to-low-costs-despite-risks-report-129498
ILO. (n.d). Country profiles: The latest decent work statistics by country. Retrieved from https://ilostat.ilo.org/data/country-profiles/
Lundby, K., Jolton, J., & Kraut, A. I. (2010). Going global: Practical applications and recommendations for HR and OD professionals in the global workplace . John Wiley & Sons.
Scott, A. (2019). General Electric's machinists oppose tentative labor deal. Reuters Business. Retrieved from https://www.reuters.com/article/us-ge-labor/general-electrics-machinists-oppose-tentative-labor-deal-idUSKCN1TR2V7
